PEST Analysis – How to do PEST Analysis?

PEST Analysis is the analysis of external macro environments, which influence all the organizations in an industry. PEST is an acronym of the following four words, P for Political, E for Economic, S for Social and T for Technological. These External Macro Environment Factors are out of control of every organization & therefore considered as threats for the organization. Mostly this analysis is called PEST Analysis, but sometimes it may also re-arrange as STEP analysis.

How to do the PEST Analysis

There are many macro environmental factors that are country specific in nature & therefore PEST analysis is required to be conducted for all relevant countries.

Political Analysis

In political analysis of PEST analysis, the government intervention in the economy is studies. The extent & potential of the government intervention in the economy is highlighted. For example it is seen that what kinds of government policies are present in the economy, either there exist political stability or instability in the foreign markets. Moreover certain laws are considered like labor laws, Tax policy, trade policy, environmental laws & trade restrictions etc.

Political factors exert severe effects on the working of the organization. The organization should consider the political factors at their strategic level so that the current & future legislation can be respond by the proper adjustments in the marketing policy.

Following are included in the political analysis.

Risk of military attack

Political stability

Trade tariffs & regulations

Anti-trust laws

Tax rates & incentives in taxation

Intellectual property protection

Contract enforcement in legal framework

Favored trading partners

Minimum wage & overtime in wage legislation

Work week

Product labeling requirements

Industrial safety regulations

Mandatory employee benefits

Economic Analysis

The working of the organization is seriously influenced by the economic factors. In fact the profitability of the organization greatly depends on these economic factors. Economic factors may be interest rates, exchange rates, economic growth, disposable income of customers and inflation etc.

Economic analysis is further divided into two main categories which include micro-economical factors & macro-economical factors. The management of demand in any particular economy is considered by the macro-environmental factors. Government of the country employs taxation policy, government expenditure and interest rate control as the controlling forces to manage this aspect of economic portion of PEST analysis.

The spending ways of the income of the people are covered in the portion of micro-economical factors. The B2C organizations are largely affected by micro-environmental factors of the economy.

Economic analysis include the following examples

Intervention of government in free market

Kind of economic system in the operating country

Efficiency of financial markets

Stability of the currency of the host country & exchange rate

Infrastructure quality

Labor costs

Economic growth rate

Business cycle stage

Skill level of workforce

Discretionary income

Inflation rate

Unemployment rate

Interest rate

Social Analysis

The shared beliefs & attitudes of the people of the certain population are included in the socio-cultural factors that are generally called social factors. The social factors are important forces of the PEST analysis as they greatly influence the smooth running of business organizations. Social factors contain forces such are age distribution, health consciousness, population growth and career attitudes etc. social analysis facilitates the understanding of the marketers about their customers & the driving elements that stimulate the customers. Following are some of examples of the social factors

Class structure

Education

Demographics

Entrepreneurial spirit

Culture

Attitudes

Leisure interests

Technological Analysis

Technological factors influence greatly on the way organizations market their products. The technology in the world is changing at a rapid rate. The technological forces influence the management & marketing of the organizations in the following three aspects.

New methods of manufacturing goods & services

New methods of distributing goods & services

New Methods of communicating with the target markets

Following are some of the examples of the technological forces of the technological analysis.